Mumbai, July 23 -- The government plans to broaden the definition of services under the Special Economic Zones (SEZ) Act and to align it with the Goods and Services Tax (GST) law, an official familiar with the matter said. The move aims to remove the long standing restriction that requires service exports from SEZs to earn foreign exchange. Ministers and officials are reported to favour an amendment that would modernise the wording to reflect current trade and digital service patterns.
The proposed amendment would alter the existing provision in the SEZ Act that mandates payment for services in foreign currency, enabling service firms in SEZ units to receive payments in Rs for services supplied to the Domestic Tariff Area (DTA). Officials said the statute would be revised so that the definition of services mirrors the definition in the GST Act. Legal and policy advisers have been asked to draft the precise legislative wording.
The change forms part of a broader exercise to make SEZs more attractive to service firms after the withdrawal of certain income tax incentives. Several information technology companies have relocated or revised operations following the incentives change, and regulatory barriers on rupee denominated payments have been cited as a factor. Industry participants have highlighted the mismatch between a growing domestic digital economy and rules designed for export led activity.
Officials said the government is simultaneously examining additional reforms and awaiting recommendations from a committee reviewing the legal and policy framework for SEZs. Representatives from SEZ units met officials at the Ministry of Commerce recently to press for the right to invoice in Rs for domestic contracts. They also urged alignment of SEZ rules with other export promotion schemes and proposals to position Free Trade Warehousing Zones as global logistics hubs.
Published by HT Digital Content Services with permission from Construction World.